St. of Iowa Telacommun v. Fed. Commun. Comm'n, 99-1149

• Decision Date: 27 June 2000
• Docket Number: No. 99-1149,99-1149
• Citation: 218 F.3d 756
• Parties: (D.C. Cir. 2000) State of Iowa and Iowa Telecommunications and Technology Commission, Petitioners v. Federal Communications Commission and United States of America, Respondents Bell Atlantic Telephone Companies, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 756

218 F.3d 756 (D.C. Cir. 2000)

State of Iowa and Iowa Telecommunications and Technology Commission, Petitioners v. Federal Communications Commission and United States of America, Respondents Bell Atlantic Telephone Companies, et al., Intervenors

No. 99-1149

United States Court of Appeals FOR THE DISTRICT OF COUMBIA CIRCUIT

Argued January 24, 2000

Decided June 27, 2000

On Petition for Review of an Order of the Federal Communications Commission

Michael D. Hays argued the cause for petitioners. With him on the briefs were Kenneth D. Salomon and J.G. Harrington.

James M. Carr, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the briefs were Christopher J. Wright, General Counsel, Daniel M. Armstrong, Associate General Counsel, and John E. Ingle, Deputy Associate General Counsel. Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, U.S. Department of Justice, entered appearances.

Donald M. Falk, Michael E. Glover, Edward H. Shakin, Dan L. Poole, Robert B. McKenna, William F. Maher, Jr., Stephen L. Goodman, Richard White Jr., Michael S. Pabian, David Cosson, Lawrence E. Sarjeant, Linda Kent, Keith Townsend, John Hunter and Julie Rones were on the brief for intervenors. L. Marie Guillory and Lawrence W. Katz entered appearances.

Before: Ginsburg, Sentelle, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge:

The State of Iowa and the Iowa Telecommunications and Technology Commission (collectively, Iowa) petition for review of a declaratory ruling by the Federal Communications Commission. The Commission held that the Iowa Communications Network (ICN) is not a common carrier and therefore not a "telecommunications carrier" within the meaning of § 254(h) of the Telecommunications Act of 1996, 47 U.S.C. § 254(h). Consequently, the ICN is ineligible for direct universal service support for the discounted telecommunications services it provides to schools, libraries, and rural health care providers. See Federal-State Joint Board on Universal Service, Declaratory Ruling, 14 F.C.C.R. 3040 (1999) (Declaratory Ruling).

Iowa raises two arguments in its petition for review. First, Iowa claims the Commission erred by determining that the ICN is not a common carrier. Second, Iowa claims that regardless whether the ICN is a common carrier, it is a "telecommunications carrier" within the meaning of the 1996 Act, and therefore is eligible for direct universal service support. To the extent the latter claim is not foreclosed by our recent decision in Virgin Islands Tel. Corp. v. FCC, 198 F.3d 921, 922, 925 (1999) (upholding as reasonable FCC's position that " 'telecommunications carrier' means essentially the same as common carrier"), it is foreclosed by the deference we owe the Commission's reasonable interpretation of the statute it administers, pursuant to step two of the analysis in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).

With respect to Iowa's first claim, however, the Commission failed to address Iowa's argument that offering services to all potential customers to whom the carrier, under state law, may provide services makes the ICN a common carrier for purposes of the 1996 Act. We therefore grant the petition for review and remand this matter to the Commission to consider Iowa's argument in the first instance.

I. Background

The Iowa legislature established the ICN in 1989 to provide heavily subsidized high-speed telecommunications services throughout the state, particularly to areas that may be under served by the local exchange carrier. The legislature did not, however, authorize the ICN to serve everyone in the state that could use its services; in particular, the ICN may not provide services to individuals or to most private businesses. Rather, the ICN may provide service only to "public and private agencies," Iowa Code 8D.11(2), defined as follows:

"Private agency" means an accredited nonpublic school, a nonprofit institution of higher education eligible for tuition grants, or a hospital licensed pursuant to chapter135B or a physician clinic to the extent provided in section 8D.13, subsection 16.

"Public agency" means a state agency, an institution under the control of the board of regents, the judicial branch ... a school corporation, a city library, a region allibrary ... a county library ... or a judicial district department of correctional services ..., an agency of the federal government, or a United States post office which receives a federal grant for pilot and demonstration projects.

Iowa Code 8D.2(4)-(5).

Iowa Code 8D.9 further divides the class of "public and private agencies" into two subclasses. First, Certifying Users, which are institutions of higher education, area education agencies, and certain United States Post Offices, were required to certify by July 1, 1994 their intention to connect to the network. Any Certifying User that did not certify its intention by that date may not use the ICN without specific legislative authorization. Any Certifying User that did timely certify its intention to connect to the ICN must receive all its telecommunications services from the ICN unless it obtains a waiver based upon certain objective criteria specified in the statute. See id. 8D.9(2). Second, Preauthorized Users, which are all other public and private agencies, may connect to the ICN at any time without further authorization from the legislature, and may choose which telecommunications services to take from the ICN. Although Iowa points to no statute requiring that the ICN serve all authorized users, the parties agree that in practice the ICN will provide service to any Preauthorized User and to any timely Certifying User that requests service.

Under § 254(h)(1) of the 1996 Act, a "telecommunications carrier" must provide services at discounted rates to schools, libraries, and rural health care providers, and is entitled to receive from the Commission, in an amount equal to the aggregate discount given to such entities, either a reimbursement or an offset against the carrier's obligation to participate in or contribute to the universal telecommunications service fund. 47 U.S.C. § 254(h)(1). "Telecommunications carrier" is defined as "any provider of telecommunications services," id. 153(44), and "telecommunications service" is defined as "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used," id. 153(46).

The Commission determined that "telecommunications services" means "only telecommunications provided on a common carrier basis." Federal-State Joint Board on Universal Service, Report & Order, 12 F.C.C.R. 8776, 9177 p 785 (1997).Therefore, in the Commission's scheme for administering § 254, a carrier that provides a service on a non-common carrier basis is not a "telecommunications carrier" and hence is ineligible for universal service support with respect to that service.

In response to Iowa's request for a declaratory ruling, the Commission held that the ICN is not a common carrier. See 14 F.C.C.R. at 3056 p 29. Specifically, the Commission noted that the primary characteristic of a common carrier is that it "holds [it]self out to serve indifferently all potential users," id. at 3050 p 21, and determined that the ICN failed this test for two reasons: The ICN does not hold itself out to serve all users, but is instead limited to serving only "public and private agencies," as defined by the statute law of Iowa, see id. p p 22, 24-25; and the ICN impermissibly discriminates among users in the terms upon which it offers service, see id. at 3051 p 23. Iowa petitions for review of the Declaratory Ruling.

II. Analysis

Before the Commission, Iowa argued, among other things, that the ICN is a common carrier because it offers service to all the users it is authorized by law to serve:

[T]he case law firmly establishes that ICN only need serve a specified clientele indifferently to qualify as a common carrier.... [ICN's] customers are determined by its governing statute, not by the ICN itself. Under that statute the Legislature designated broad classes of potential customers and required the ICN to serve all of the members of those classes.

In its brief to this court, Iowa reiterates this argument and relies primarily upon two cases for support: FCC v. Midwest Video Corp., 440 U.S. 689 (1979), and National Ass'n of Regulatory Util. Comm'rs v. FCC (NARUC), 525 F.2d 630 (D.C. Cir. 1976).

In Midwest Video the Commission had promulgated regulations requiring cable television systems to allocate channels for public, educational, government, and leased access users.440 U.S. at 693. Although the regulations required that the public and leased access channels be open to all potential users, use of the educational and government access...